KevinN. Marder

NEW YORK (CBS.MW) -- Stocks' best performance in over a decade Tuesday seemed but a faint memory Wednesday, as escalating concerns over the White House scandal and Latin American economies sapped the market of its vigor.

The day's activity occurred as a few more blue-chip concerns stepped forward to warn of disappointing near-term results.

The selling picked up speed in mid-morning after news hit the wires that House Speaker Newt Gingrich wants the public to have access to Independent Counsel Kenneth Starr's report on President Clinton.

By late afternoon, the report had landed on Capitol Hill. Charles Bakaly, a spokesman for Starr's office, said the report's findings "may constitute" grounds for impeachment. See full story.

"The situation surrounding the president may impact the market on a day-to-day basis, but I think it's maybe 15 percent of the equation," said Ricky Harrington, senior vice president and technical analyst at Interstate/Johnson Lane Inc.

"I would say that the Asian situation and how it impacts the U.S. economy is maybe 50 percent and the market's overvaluation is also another 30 percent to 40 percent of the equation," Harrington said.

"I think the political situation has already been factored into market prices to a certain extent."

Inside the market, cautionary words from Merrill Lynch sent the retail sector to the day's biggest losses, while bank and brokerage
$xbd
shares were felled on continuing worry over exposure to emerging markets.

Technology stocks, meanwhile, traded lower in line with blue-chip averages, as did the broader market.

A modest plus was the level of trading activity, which dried up from Tuesday's levels.

"Tuesday's bullish action was indeed the start of something, but the market is not going up 380 points a day for the next few months," Robert Dickey, managing director of technical research at Dain Rauscher Wessels, said in a report.

Tuesday the Dow soared 380.53 points, or 5.0 percent, for its biggest point gain ever. In percentage terms, the move was the heftiest since the 10.2 percent vault of Oct. 21, 1987.

The surge occurred after weekend comments by Federal Reserve Chairman Alan Greenspan. He intimated that the risks of an economic slowdown as a result of the spreading global financial crisis might outweigh the risks of inflation.

The implication is that the central bank has shifted its monetary policy bias from higher rates to one of neutrality, the first step on the road to a rate cut. See related story.

Technically, Tuesday's stock advance was strong. The breadth of the move was exceptional, with New York Stock Exchange winners exceeding losers by a 4.09-to-1 margin, the widest since the 4.22-to-1 figure of May 2, 1997.

And in Tuesday's Nasdaq Stock Market, advancing issues beat decliners by 2.4 to 1, the best since the 2.62-to-1 ratio of July 17, 1996.

Further, the ratio of up volume to down volume on the NYSE stood at 10.5, a level seldom seen. See related story.

"The technical underpinnings of the market are getting better as the upside volume improves along with better action for the advance-decline statistics and the broad market measures," Dickey said.

"We expect that the strength will continue to broaden out. But the market will also slow down in its upside exuberance over the next few weeks."

In Wednesday's overseas news, Japan's central bank halved its key call rate target to 0.25 percent from 0.50 percent. The rate is what banks charge each other for overnight loans of a collateral-free nature.

The move, the first monetary policy easing since 1995, has the effect of trimming corporate borrowing costs as the Japanese government tries to kickstart its economy, in its worst recession since World War II. See full story.

On the Big Board floor, turnover ebbed 14 percent to 703 million shares.

The Nasdaq Composite
$compq
declined 2.2 percent. Tuesday, the index surged to its biggest point gain in history. On a percentage basis, the 6.0 percent move was the Composite's best since bolting 7.3 percent on Oct. 21, 1987.

Declining issues led advancers by 2 to 1 in the Nasdaq Stock Market. Volume totaled679 million shares.

In specific issues, Merrill Lynch (MER)
MER, -2.00%
said exposure to emerging markets slimmed its profits by $135 million in July and August. It still emerged with income of $102 million in the period. The stock fell 6 7/8 to 59 1/8.

Procter & Gamble (PG)
PG, -0.40%
surrendered 7 3/4 to 71 7/8. The consumer products powerhouse said Russia's debacle will halt some product shipments, with first-quarter growth expected to be in the "mid-single digits." The effects of the strong U.S. dollar are another hamper on profits. But P&G anticipates results for the fiscal year ending June 1999 meeting consensus projections.

America Online (AOL)
aol
lost 1 to 94 1/4. Raymond James & Associates analyst Phil Leigh repeated his "buy" rating of the online services provider. Leigh feels the recent decline in the stock is not tied to company-specific factors, but rather a result of weaker prices in the overall Internet group.

Appliance manufacturer Maytag (MYG)
MYG, -4.17%
appreciated 1 13/16 to 46 9/16. The company eyes third-quarter revenues up as much as 20 percent over the year-ago quarter. In addition, it expects to beat most analysts' earnings forecasts of 70 cents a share in the period. Maytag attributed the upbeat outlook to elevated sales from its high-end products.

Eagle USA Airfreight (EUSA)
EUSA, -1.00%
cratered 8 13/16, or 40 percent, to 13 1/2 after the provider of airfreight services said fourth-quarter earnings will likely come in between 27 cents and 31 cents a share. Wall Street had counted on 34 cents. See full story.

In technology, nearly three benchmark issues fell for each that gained. The stocks had outperformed the market in four of the prior five days. Of the three best-acting names since the Sept. 1 market low, Dell Computer
dell
gave up 2 13/16 to 57 1/8, EMC
EMC, -3.17%
sagged 2 13/16 to 51 3/8, and WorldCom
wcom
dipped 1 3/16 to 47 1/8.

To review, it was mentioned in this space July 30 that "...the market is simply not ready for a sustainable intermediate-term advance at present. More of a corrective process is necessary before the seeds can be sown for the next legitimate ascent." .

From July 30 to Sept. 1's intraday low of 7,400.30, the Dow proceeded to stumble 1,626.65 points, or 18.0 percent. During this period, the Nasdaq Composite swooned 23.1 percent.

Then on Aug. 27 in this space it was stated that "the market needs to once again prove itself by following through on any initial rally attempt. This means ignoring the first few days of a bounceback and focusing on the market's action in the ensuing sessions.".

The market's action of Tuesday Sept. 8 constituted a follow-through day, confirming Aug. 31 as an intermediate-term bottom on the Dow.

The follow-through technique, developed by William O'Neil, caught the fifth day off the October 1990 bottom, the seventh day off the July 1996 bottom, the seventh day off the April 1997 bottom, and the fifth day off the January 1998 bottom, among other market troughs.

Although nothing works all the time in the stock market, the approximate 80 percent success rate of this indicator is to be noted.

The market's raft of worries, touched on in the , is another plus. Since the market factors the future into current prices, bottoms are formed amid a climate of fear. It is to be remembered that the bottoms of October 1987, October 1990, April 1994, April 1997, and October 1997 occurred amid heightened worry on the part of investors.

That said, stocks will not have a cakewalk ahead of them. In fact, the ensuing advance promises to be more labored than those following the July 1996 and April 1997 lows.

The reason can be summed in one word: breadth.

When the Dow and S&P 500 indexes made intermediate peaks in May 1996 and March 1997, the cumulative NYSE advance-decline line peaked simultaneously.

This time the story's different. The a-d line topped a full 15 weeks before peaks in the blue-chip averages.

The upshot is that the market's subsurface deterioration is much worse than at any other point since the bull move began in October 1990. Technically, this deterioration needs more time to repair itself before a strong move can be expected, Tuesday's gargantuan gains notwithstanding.

Specifically, individual stocks need to back and fill for a spell until sideways basing patterns are formed. This, in turn, will set the stage for a healthier, more sustained advance.

Until then, the session low of Sept. 1 will prove the bottom of the market's summer selloff, which saw the Dow collapse 21.0 percent in a scant six weeks on an intraday basis.

The key point is that getting caught up in the fear of the day normally keeps the investor on the sidelines at precisely the time that the market is done factoring all of the bad news into current prices. This is why it is crucial to listen to the message of the market itself.

Given its forward-looking demeanor, the market's story usually is the more important one.

COMMODITIES

New York light sweet crude for October delivery declined 15 cents to $14.14.

December gold fell $1.70 to $287.40.

CURRENCIES

The dollar traded mixed vs. the yen and d-mark.

Dollar/yen was quoted at 136.92 from Tuesday's 132.00.

Dollar/mark was at 1.7190 from 1.7320. See latest currency rates.

LOOKING FORWARD

Thursday, the weekly jobless claims report will be released at 8:30 a.m. ET. Most economists expect 306,000 new claims for state unemployment insurance benefits.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
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